Induced consumption

Induced consumption is the part of consumption that changes with disposable income. It is when there is a change in disposable income “induces” (persuades or makes someone want to do something) a change in consumption on goods and services. In contrast, spending for autonomous consumption do not change with income. For example, spending on a consumable that is considered a normal good would be considered to be induced.

In the simple linear consumption function,

[math]\displaystyle{ C = a + b \times Y_{d} }[/math]

induced consumption is represented by the term [math]\displaystyle{ b \times Y_{d} }[/math], where [math]\displaystyle{ Y_{d} }[/math] shows disposable income. [math]\displaystyle{ b }[/math] is called the marginal propensity to consume.

References

• Arnold, Roger A. (2015). "The Consumption Function". Economics (12th ed.). Cengage Learning. pp. 259–60. ISBN 978-1-305-46545-9.